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Demonetization is really a success story
Posted:Sep 9, 2017
 
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By Sudip Bhattacharyya
 
Former Reserve Bank of India (RBI) Governor Raghuram Rajan said ‘In order to become a more developed country, India has to get people who owe taxes to actually pay them.’ This is one of the major objectives that Modi sought to achieve though demonetization and he has largely succeeded.
 
As Swaminomics said in TOI dated 3rd September, the recent fall in quarterly GDP of India is not so much due to demonetization and GST as much as due to stagnant exports. On the other hand, demonetization has created a fear among black marketers and tax evaders as borne out from the following statistics.
 
The government's estimate is that thanks to demonetization, India's net personal income tax revenue could double over the next couple of years. The number of people who have filed self-assessment forms for the financial year 2016-17 grew 23.8 per cent. Senior officials in the administration say that demonetization has sent a message that those who evade tax are engaging in a form of financial terrorism and that the law is now going to come after them.
 
Nearly 91 lakh new assesses joined the tax base in FY 2016-17. In years gone by, the increase in the number of assessees has usually been in the range of 20-25 lakh. The government's belief is that a strong message has gone out that there's no point any longer in hiding income. Last year, just 24 lakh individuals declared a net income of more than Rs 10 lakh. Of this meagre number, 65% were those who drew fixed salaries.
Before demonetization, roughly 1 lakh new pan cards were issued every day. Now the number of new PAN cards issued every day averages between 2-3 lakhs.
 
Individuals and entities who deposited a total of more than Rs 2 lakh crore cash during demonetization had never ever filed any income tax return, reveals Union Finance Ministry data accessed by DNA. The papers show a total of 22.22 lakh tax-evaders, of which 21.12 lakh were individuals, 11,579 companies, and the rest comprising of firms (57,693), trusts, Associates of Person (AoP), Hindu Undivided Family (HUF), Artificial Judicial Person (AJP), and miscellaneous categories.
 
The government started identifying suspicious cash depositors from day one of demonetization. All these tax-evaders are high cash depositors who have returned banned notes worth Rs 1.02 lakh crore. One-third the total individual depositors in the country did not disclose their income. Around 47 per cent AoP, 24.71 per cent trusts, and 38.9 per cent AJP had never filed tax returns.
 
The demonetization advantages report of the Modi government says that with Rs 14.2 lakh crores of currency the economy is able to meet all its transactional requirements. This means that the economy now has roughly Rs 5 lakh crores of cash less than the amount it would have had if demonetization had not happened. This essentially means that the amount of cash stashed away by citizens has come down. This is advantageous to the economy since the hoarding of cash delivers no value to the country's economic growth.
 
The other major impact is the push demonetization has given to cashless economy and digitization. In FY 2016-17, there were a total of 300 crore digital transactions. If the rate seen in the first few weeks of FY 2017-18 continues, then the government estimates that this year there will be more than 2500 crore digital transactions.
 
The usage of mobile wallets like PayTM, SBI Buddy, FreeCharge is already worth more than Rs 200 crore per day. In the five months since its launch, 2 crore people have downloaded the BHIM app. The BHIM and UPI payment gateways are already averaging a daily transactional value of Rs 140 crore per day.
Debit card usage figures have gone up significantly post demonetization. In 2015-16, the total number of debit card transactions was 117 crores, which had an aggregate transactional value of Rs 1.58 crores. In 2016-17, the number of transactions went up significantly, mostly after demonetisation: there were 240 crore debit card transactions with a total value of Rs 3.3 lakh crore.
 
Other significant positive outcomes are the following:
 
1. Demonetization has helped bring a significant amount of additional money into the formal banking system, which is apparent from the increased number of bank deposits. The government's estimate is that the total amount of savings in the banking system has gone up by Rs 4.5 lakh crore from the pre-demonetization baseline figure.
2. Demonetization has also helped ensure that the advantage of a RBI rate cut is actually passed on to the consumer. After demonetization, banks have already reduced the Marginal Cost of Fund Based Lending Rates (MCLR) by around 100 basis points and the government expects that the reduction will continue in the coming months.
3. Demonetization is also giving a boost to reviving the housing sector which has been in the doldrums for the last few years. Interest rate for individual borrowers is already down to 8.2 per cent. Before demonetization, interest rates hovered at around 9.3 per cent.
 
Recently, Paul Krugman, Nobel Prize winning writer, admitted that he made qcmistake on the Modi government’s demonetization move when he predicted a doomsday scenario for the Indian economy. The reason is that he has now witnessed fruitful positive response in Indian economy due to demonetization.
 
(Sudip Bhattacharyya is a commentator on contemporary issues. He can be reached at bhattacharyya.s@gmail.com)
 
 
 
 
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